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MADE IN INDIA VS. MADE IN CHINA:

A TALE OF TWO ASIAN GIANTS

The push for Indian manufacturing is a strategic imperative that extends far beyond boosting domestic employment. It's a calculated move to recalibrate India's economic landscape, redirecting vast sums of capital towards key sectors and addressing a 📊 persistent trade imbalance.

In May 2024, India's overall trade deficit ⛔️ stood at $10.90 billion, an improvement from $11.41 billion in May 2023. However, the trade imbalance with China remains stark. In April 2024, India's imports from China (Rs. 6,501,002.29 lacs) dwarfed its exports (Rs. 1,045,158.38 lacs) by 6.22 times. This imbalance was particularly pronounced in 📱 high-tech sectors.

75%

The share of Chinese smartphones in total sales in the Indian market.

Broadly, China dominates India's electronics, telecom, and electrical imports with a 43.9% share, which rises to 56% when combined with Hong Kong.

As India aspires to superpower status, it faces a complex challenge: How does a nation fuel its ascent while heavily reliant on its most formidable rival? This dilemma shapes India’s strategic economic choices, including trade policies and domestic manufacturing initiatives, as it works to balance benefiting from China’s economic might with decreasing key dependencies.

🎭 THE GREAT IRONY: ENEMY AT THE BORDER, PARTNER IN PROGRESS

The roots of this complex relationship stretch back to 1991 when India liberalized its economy. This move opened a floodgate of trade transactions between the two neighbours. Suddenly, Indian businesses had access to Chinese goods, 🌐🤝 and the potential of the Indian market became apparent to Chinese firms.

The growing dependency on Chinese imports has raised significant concerns in New Delhi, especially following the 2020 Galwan Valley clash that resulted in 20 Indian casualties. This incident prompted India to ban hundreds of Chinese apps, including TikTok, ⚔️📵 citing national security concerns.

The Three-Decade Transformation: A Tale of Two Economies

Over the past three decades, the economic relationship between India and China has undergone a dramatic transformation:

Key Trends in India-China Economic Relations (2001-2024):

• Bilateral trade growth: 📈 $3.6 billion to $101.8 billion

• China's share of India's imports: 🛒 15% of total imports

• Sector dominance: 🏭 China leads in 8 major industrial sectors

• Cumulative trade deficit: ⚖️ Exceeded $387 billion over six years

Despite this, India's exports to China have shown some positive signs:

• Diversification: Exports have increased in 90 out of 161 commodities shipped to China.

• Significant Contribution: These 90 commodities now account for 67.7% of India's export basket to China.

• Key Export Items: Major exports include iron ore, cotton, yarn, fabrics, handloom products, spices, fruits, vegetables, plastic, and linoleum.

It's not just about cheap toys 🧸 anymore. China has become integral to our industrial supply chains, from pharmaceuticals to high-tech manufacturing.

Indeed, a walk through any Indian home today is likely to reveal a plethora of Chinese-made products. From the smartphone in your pocket to the LED bulbs illuminating rooms, and even the vital ingredients in your medicines – the 🇨🇳 “Made in China” label is ubiquitous.

💹 THE BALLOONING DEFICIT: BREAKDOWN BY SECTOR

The trade deficit between India and China has been a persistent concern, reaching a record high of $101.02 billion in 2022. This imbalance is not uniform across all sectors but is particularly pronounced in specific areas.

Key Sectors Contributing to the Deficit:

1. Electronics and Electrical Equipment 📱💻

   Trade Deficit: Approximately $28 billion (2022)

   Why?:

   • China's advanced manufacturing capabilities

   • Lower production costs in China

   • India's limited domestic production of high-end components

2. Machinery and Mechanical Appliances 🏭🔧

   Trade Deficit: Around $23 billion (2022)

   Why?:

   • China's technological advancement in industrial machinery

   • Cost-effectiveness of Chinese equipment

   • India's dependence on imports for modernizing its manufacturing sector

3. Chemicals and Pharmaceuticals 💊🧪

   Trade Deficit: Approximately $15 billion (2022)

   Why?:

   • 60-70% Active Pharmaceutical Ingredients (APIs) sourced from China

   • China's economies of scale in chemical production

   • India's limited capacity in certain specialized chemicals

4. Plastics and Plastic Articles 🥤🛍️

   Trade Deficit: About $7 billion (2022)

   Why?:

   • China's advanced polymer technology

   • Lower production costs for plastic raw materials in China

   • India's growing demand for plastic products across industries

5. Optical and Photographic Equipment 📷🔬

   Trade Deficit: Roughly $5 billion (2022)

   Why?:

   • China's dominance in manufacturing precision instruments

   • India's limited domestic production capabilities in this high-tech sector

🐲 THE DRAGON'S FOOTPRINT: CHINESE FIRMS IN INDIA

Chinese companies have maintained and even expanded their presence in other key Indian sectors:

• Digital Economy: 🧑‍💻 Substantial Chinese investments in Indian startups

• Electronics and Telecom: 📳 8.4% of India's imports come from China. $4.2 billion worth of telecom and smartphone parts imported in 2022

• Automotive & Electric Vehicles: 🚗 Significant reliance on Chinese parts, especially for electric vehicles with $2.2 billion worth of lithium-ion batteries imported in FY23-24

• Solar Energy: 🌅 A large portion of solar panels and equipment are imported from China, impacting India's ambitious renewable energy targets

With such a heavy dependence on Chinese imports across critical sectors, concerns about India’s economic sovereignty and national security inevitably arise, especially as it contends with a technologically advanced rival.

🔗 THE WEB OF INTERDEPENDENCE: CHINA AND INDIA

Why are China and India interdependent?

1. Complementary Economic Strengths 💪 While China excels as a manufacturing powerhouse with advanced infrastructure, India boasts strengths in its services sector, a large consumer market, and a skilled workforce.

2. Geographic Proximity 🗺️ Shared border facilitates easier trade and logistics

3. Scale of Economies 📊 Both are among the world's largest economies, offering vast markets for each other

4. Global Supply Chains 🌐 Both countries are integral parts of various global supply chains

Why is India more dependent on China?

1. Manufacturing Capability Gap 🏭 China's advanced manufacturing ecosystem outpaces India's.

2. Critical Sector Reliance 🔬 India heavily depends on Chinese imports in key sectors. Ex.: 38.4% of electronics and telecom products along with 40% of machinery imports are sourced from China

3. Price Competitiveness 💰 Chinese products often offer better price points compared to domestic or other international alternatives

4. Technological Edge 🚀 In many high-tech sectors, Chinese products offer advanced features at competitive prices

5. Capital and Investment 💼 Chinese tech giants like Alibaba and Tencent have made significant investments in Indian startups and tech companies, particularly in fintech, e-commerce, and ed-tech sectors. FDI from China reaching $2.43 billion in 2020

The scale of this economic interdependence was unimaginable even a decade ago. It's a relationship that's too big to fail, yet too complex to be comfortable.

However, geopolitical tensions have led to increased scrutiny. 🔎 In 2020, India amended its FDI policy, requiring government approval for investments from countries sharing a land border with India – a move widely seen as targeting China.

🌋 THE VOLCANO EFFECT: GEOPOLITICAL TENSIONS VS ECONOMIC NECESSITIES

The India-China relationship embodies a complex interplay of geopolitical rivalry and economic interdependence. This dynamic creates a volatile situation akin to a dormant volcano, where economic cooperation exists atop a foundation of simmering tensions.

Key Geopolitical Flashpoints -

1. Territorial Disputes

   • Ongoing border conflicts in Ladakh and Arunachal Pradesh

   • Periodic military standoffs and skirmishes like the 2017 Doklam crisis and the 2020 Galwan Valley clash

2. Strategic Competition

   • Rivalry for influence in the Indo-Pacific region

   • India's alignment with the Quad (US, Japan, Australia) vs. China's Belt and Road Initiative

3. Economic Concerns

   • India's growing trade deficit with China

   • Fear of Chinese market dominance in critical sectors

Emerging Security and Sovereignty Issues -

1. Data and Cybersecurity

   • Concerns over data handling practices of Chinese tech companies

   • Fears of potential surveillance and cyber espionage

2. Economic Sovereignty -

   • Apprehension about Chinese firms gaining outsized control in strategic sectors

   • Dependency on Chinese imports for critical components and raw materials

3. Strategic Vulnerability -

   • Risk of economic leverage being used to influence geopolitical disputes

   • Concerns about supply chain disruptions during times of conflict

Yet, amidst these tensions:

• Bilateral trade continues to grow

• Chinese investments in Indian startups remain significant (though reduced post-2020 policy changes)

• Supply chain interdependencies persist

THE ROAD AHEAD

As India aims to become a $5 trillion economy by 2025, its relationship with China will be crucial. While complete decoupling seems unlikely in the near term, India must build its capabilities and diversify partnerships.